1. 1ST NATIONAL FORENSIC CONFERENCE,
YAOUNDE, CAMEROON
Richard Mayungbe, PhD, MBA, FICCA, FICA, CPFA, ACFE, MICM,
MIPN, Ch.MC, MITD
Global Financial and Management Trainer, Forensic
Accountant, Fraud Fighter, Consultant and Author
Tel: +23772585428, +234 8033467639,
www.richardmayungbe.blogspot.com
Skype: tsiltd.tsiltd
1

2. CONTENTS
• DAY 1
• Definition of fraud, How Fraud Occurs, Various Fraud
Schemes and targets.
• Psychology of fraud: what motivates the fraudster
• DAY 2
• Interviewing for Fraud in the Audit Process
• DAY 3
• Fraud Investigation
• Interviewing
• Free discussion on all the topics, question and answer etc
2

3. DEFINITION OF FRAUD, HOW FRAUD OCCURS,
VARIOUS FRAUD SCHEMES AND TARGETS
• It is a great pleasure to welcome all delegates
to this brain storming conference aimed at
pulling our collective wisdom together in
finding effective solutions to one of Africa’s
nagging problems, “Fraud and Corruption”
• For the next 3 days, we shall be here together
on this matter.
3

4. Definition of Fraud
• There is no single accepted definition of fraud.
• It is impossible to provide a comprehensive
definition of fraud.
• Indeed, it may be possible to distinguish
between two general types of definition:
• a general broader one and
• a criminal narrower one.
• However, all definitions have one thing in
common - an element of dishonesty or deceit.
4

5. Definition of fraud.. (contd.)
• There are many dictionary definitions of the word
'fraud' each is similar but not exactly the same.
• Expressions such as:
• Unfair advantage by unlawful or unfair means;
• Knowingly making a false representation;
• Intentional deception resulting in injury to
another person;
• Something intended to deceive; deliberate
trickery intended to gain an advantage;
5

6. Definition of fraud.. (contd.)
• An intentional perversion of truth; deceitful
practice or device resorted to with intent to
deprive another of property or other right;
• The intentional and successful employment of
cunning, deception, collusion; or artifice used
to cheat or deceive another person whereby
that person acts upon it to the loss of his
property and to his legal injury;
6

7. Definition of fraud.. (contd.)
• The act of leading a person to believe
something which you know to be false in a
situation where you know the person will rely
on that thing to their detriment;
• A deception, intended to wrongfully obtain
money or property from the reliance of
another on the deceptive statements or acts,
believing them to be true;
7

8. Definition of fraud.. (contd.)
• The intentional perversion of the truth in
order to mislead someone into parting with
something of value
• The specific legal definition varies by legal
jurisdiction, but fraud is a crime, and is also
a civil law violation.
8

9. Definition of fraud.. (contd.)
• From the point of view of the criminal law,
fraud could be defined as criminal deception,
being the use of false representations to
obtain unfair advantage or to harm the
interests of another.
9

10. Definition of fraud.. (contd.)
• To deceive is to induce someone to believe
that a thing is true which is false, and which
the person practicing the deceit knows or
believes to be false.
• To defraud is to deprive by deceit:
• It is by deceit to induce someone to act to his
injury.
10

11. Nine elements of fraud
• a representation of an existing fact;
• its materiality;
• its falsity;
• the speaker's knowledge of its falsity;
• the speaker's intent that it shall be acted upon by the
plaintiff;
• plaintiff's ignorance of its falsity;
• plaintiff's reliance on the truth of the representation;
• plaintiff's right to rely upon it; and
• consequent damages suffered by plaintiff 11

12. How Fraud Occurs
• Fraud, like other crimes, can best be explained
by three factors:
• 1) A supply of motivated offenders;
• 2) The availability of suitable targets;
• 3) The absence of capable guardians or a
control system.
12

13. How Fraud Occurs
• When economic climate declines, it is likely to
raise the risk of fraud.
• As individuals and companies suffer
financially, more people may be tempted to
cross the line of legality and engage in fraud to
maintain the lifestyles they had enjoyed
during better times.
13

14. How Fraud Occurs
• stagnant earnings,
• no bonuses,
• stiff competition,
• irresponsive governments,
• the possibility of job losses –
• all of these, and more, increase the likelihood
of an individual and even organisations to
commit fraud.
14

15. How fraud Occurs
• Smaller business are overall more susceptible
because they generally don’t have as many
people in place to separate job functions and
put controls in place.
• The culture is usually open and trusting.
15

16. Some of the Ways Occupational Fraud Occurs
• Skimming cash receipts
• Falsifying expense reports
• Forging or tampering with company checks
• Falsifying pay roll records
• Falsifying bills and invoices
16

17. Some of the Ways Occupational Fraud Occurs
• Stealing cash –Larceny
• Stealing other physical assets
• Stealing intellectual assets and information
• Corruption
• Financial statement fraud
17

18. Various Fraud Schemes and Targets
• Fraud is as numerous as the languages under
the sun!
• Let us compile the most popular ones taking
our source from the Association of Certified
Fraud Examiners 2012 Global Fraud Study
18

19. Occupational Fraud
• This type of fraud falls into 3 categories:
• Asset misappropriation schemes, in which an
employee steals or misuses the organization’s
resources (e.g., theft of company cash, false
billing schemes or inflated expense reports)
The targets here are the employers, private or
public.
19

20. Occupational Fraud
• Corruption schemes, in which an employee
misuses his or her influence in a business
transaction in a way that violates his or her
duty to the employer in order to gain a direct
or indirect benefit (e.g., schemes involving
bribery or conflicts of interest) The targets are
internal and external clients of the
organization
20

21. Occupational Fraud
• Financial statement fraud schemes, in which
an employee intentionally causes a
misstatement or omission of material
information in the organization’s financial
reports (e.g., recording fictitious revenues,
understating reported expenses or artificially
inflating reported assets) The targets are
shareholders, the investing public, banks and
financial institutions, suppliers, customers,
inland revenue, and many other stakeholders. 21

22. BANK FRAUDS
• Bank and banking related fraud can occur in
many ways from cheque fraud to credit
card fraud.
• Cheque Fraud is responsible for the loss of
about $815 million yearly, which is nearly 12
times the amount robbed from banks each
year
22

23. Bank fraud
• Many types of cheque scams exist and
include:
• Forged Signatures – involves forging a
signature on legitimate blank check
• Forged Endorsement – includes endorsing and
cashing or depositing a stolen check
• Counterfeit Checks – is on the rise with the
advancement in color copying and desktop
publishing
23

24. Bank fraud
• Altered Checks – where a person changes the name
of the payee or dollar amount on a legitimate check
• Uninsured Deposits: occurs when illegitimate
companies persuade customers with high rates of
interest or offshore secrecy to avoid paying taxes.
These companies are not monitored or authorized by
any federal bank or financial institution, meaning
depositors do not receive protection or insurance on
their investments from any state or federal
institution
24

25. Bank fraud
• Credit Card Fraud: is a common type of fraud that
affects millions each year.
• Statistics show that credit card causes $500 million
in damages to card companies and credit card
holders.
• And, if you suspect that you’re a target of credit
fraud contact your bank or credit card
company immediately to disable your card.
25

26. Bank fraud
• Falsification of Loan Applications: also known
as Loan Fraud.
• It occurs when a person produces false
information to qualify for a loan, such as a
mortgage for their house.
• Sometimes, loan officers may be in on the
fraud.
26

27. Bank fraud
• Stolen Checks
Some fraudsters obtain access to facilities handling large
amounts of checks, such as a mailroom or post office or the
offices of a tax authority (receiving many checks) or a
corporate payroll or a social or veterans' benefit office (issuing
many checks). A few checks go missing; accounts are then
opened under assumed names and the checks (often
tampered or altered in some way) deposited so that the
money can then be withdrawn by thieves. Stolen blank
checkbooks are also of value to forgers who then sign as if
they were the depositor
27

28. Bank fraud
• Demand draft fraud
• Demand draft fraud is usually done by one or more
dishonest bank employees. They remove few DD
leaves or DD books from stock and write them like a
regular DD.
• Since they are insiders, they know the coding,
punching of a demand draft. These Demand drafts
will be issued payable at distant town/city without
debiting an account. Then it will be cashed at the
payable branch.
• For the paying branch it is just another DD. 28

29. Bank fraud
• Rogue traders
• Fraudulent loans
• Forged or fraudulent documents
• Bill discounting fraud
• Booster cheques
• Prime bank fraud
29

30. Identity Fraud
• Identity theft occurs when someone uses your
personally identifying information (like your
name, social security number, or credit card
information) to pretend to be you.
• The identity thief does this for his own
personal gain at the expense of his victim
30

31. Identity fraud…contd.
An identity thief may use your information to:
• Open a new credit card, phone, or utilities
account in your name and then run up the
bills without paying them. The delinquent
account then appears on your credit report.
• Open a bank account and write bad cheques
in your name, apply for a loan in your name,
or use your bank information to drain your
account.
31

32. Identity fraud…contd.
• File a fraudulent tax return, or apply for
government benefits in your name.
• Get a driver's license with your information
but his own picture on it.
• Give your personal information to police
during an arrest. Then when he does not show
up for the court date, a warrant of arrest is
issued in your name
32

33. Identity fraud…contd.
• There are a number of methods a skilled
identity thief may use to steal your
information. These include:
• Shoulder Surfing: watching you from a nearby
location as you punch in your pin codes or
listening as you give someone else your
personal information over the phone
33

34. Identity fraud…contd.
• Dumpster Diving: rummaging through your trash to
find bills or other documents with your name and
personal information on them
• Stealing: stealing mail (including bills, credit card
statements, credit card offers, and tax information),
or even stealing wallets and purses to gain access to
documents with your personal information on them
• Bribing: bribing employees (such as government,
bank, or credit card company employees) who have
access to your personal information
34

35. Identity fraud…contd.
• Pretexting: using false pretenses to obtain your
personal information from banks, phone, credit
companies, and other companies
• Skimming: using a special storage device to scan and
remember your credit and debit card numbers when
you use your cards
• Phishing: pretending to be a financial institution or
other company (like a lotto company) and sending
you spam or pop-up advertisements to persuade you
to reveal your personal information
35

36. Identity fraud…contd.
• Changing your address: completing a change
of address form to divert your billing
statements and other mail to another location
where this information is easily accessible
36

37. warning signals
• The following is a list of warning signals
indicating that you may be a victim of identity
theft:
• Your credit card statement includes purchases
you didn't make or your bank statement
includes withdrawals you didn’t make
• You receive a credit card that you did not
apply for
• You are denied credit or offered less favorable
credit than your past spending deserves 37

38. warning signals
• You get a denial of credit that you didn't apply
for
• You receive credit card or bank statements in
your name but you do not hold the account
they're billing you for
• You no longer receive credit card, bank, or
utilities statements.
• You applied for a credit card or bank account
but you are not getting a card or statements
38

39. warning signals
• You notice some of your mail is missing
• You receive notice of a mail redirection request you didn't
make
• You receive bills from companies you don't recognize
• There are credit cards or loans that you didn't open listed on
your credit history
• Your credit report reveals inquiries from companies you never
dealt with
• Debt collection companies try to collect debts that aren't
yours
• You are arrested for a crime you didn't commit
39

40. COMPUTER FRAUDS
• Computer fraud is the use of information technology
to commit fraud
• Types of computer fraud vary and can be complex or
simple. Simple types of fraud might include:
• Sending hoax emails intended to scare people.
• Illegally using someone else’s computer or “posing”
as someone else on the Internet.
• Using spyware to gather information about people.
40

41. Computer frauds
• Emails requesting money in return for “small
deposits.”
• Pyramid schemes or investment schemes via
computer with the intent to take and use someone
else’s money.
• Emails attempting to gather personal information to
be used to access and use credit cards or social
security numbers.
• Using someone else’s computer to access personal
information with the intent to use such fraudulently
41

42. Computer frauds
• Using the computer to solicit minors into
sexual alliances.
• Violating copyright laws by copying
information with the intent to sell
information, like DVDs, CDs.
• Hacking into computer systems to gather large
amounts of information for illegal purposes.
• Hacking into or illegally using a computer to
change information, such as grades, work
reports, etc. 42

43. Computer frauds
• Sending computer viruses or worms with the
intent to destroy or ruin someone else’s
computer.
• Even though there are stiff penalties for
committing computer fraud, laws governing
against it may be difficult to enforce.
43

44. Computer frauds
• Do not give personal information to anyone or
to any company you’ve never heard of before.
This includes your full name, your address,
your phone number, credit card number,
social security numbers, or information about
the people in your household.
• Do not pay attention to get rich quick
schemes. If they seem too good to be true,
they absolutely are
44

45. Computer frauds
• Do not open emails from strangers. Install anti-viral
software and spam blocking programs on your
computer and your email program.
• Don’t download attachments from people you don’t
know.
• Teach your children about safe communication on
the Internet to protect them from Internet predators.
• Don’t keep passwords on your computer, and do not
use common passwords like the names of your kids,
birthdays, or other guessable words. Never give your
password to someone else. 45

46. Corruption in Public Procurement
• Corruption is defined by the World Bank and
Transparency International (TI) as “the misuse
of public office for private gain.” As such, it
involves the improper and unlawful behavior
of public-service officials, both politicians and
civil servants, whose positions create
opportunities for the diversion of money and
assets from government to themselves and
their accomplices
46

47. Supply and Demand of Corruption
• There are two widely-acknowledged
dimensions of corruption—supply and
demand-side.
• Supply- side is the private sector that gifts or
bribes the government officials who, in turn,
constitutes the demand-side or the receivers
47

48. Supply and Demand of Corruption
• Over the past two decades, anti-corruption
measures have targeted only the demand-side
either by limiting the government officials’
vulnerability to bribes or in-kind gifts through
enactment of laws or by empowering the
people through advocacy against the demand-
side corruption.
48

49. Supply and Demand of Corruption
• legal measures against the demand-side
corruption are important in their own right,
• we have often ignored the role of the private
sector as a supplier of corrupt payments and a
vulnerable sector for corruption itself
49

50. Who Corrupts
• Previously, the private sector believed that
corruption exists because the government officials
are corrupt and did not consider itself as encouraging
corruption.
• Over the years, the private sector has been
established as an equal participant in corruption
transaction, and efforts to limit its ability and
vulnerability to engage in corruption are therefore,
equally and urgently needed
50

51. Who Corrupts
• As corruption takes place at the interface of
the public and private sector, bringing one into
the legal net and leaving out the other has
made our anti-corruption fight one-sided.
• We have seen many corporate corruption
scandals over the years. But, a few of them
have come under the judicial hammer
51

52. Who Corrupts
• And in most of these cases, supply-side is
hardly or inadequately penalized for the
offence due to lack of a concrete policy.
• Taking into account the rapidly changing
forms of corruption, we need to address the
corruption in and by the private sector as
seriously as in the public sector by widening
the legal nets to tackle the menace
52

53. Who Corrupts
• Corruption has become so rampant that we now
need to review the existing laws to prosecute even
the bribers and the corporate corruption
• Africa is no exception to this phenomenon as
majority of the anti-corruption interventions
worldwide have focused on the demand-side only.
• Though the supply-side doesn’t adequately figure in
anti-corruption discourse, it has now become
imperative to address this almost ignored dimension
by mainstreaming it in governance policies and laws
53

54. What causes and fuels corruption
• Corruption distorts resource allocation and government
performance. The causes are many and vary from one country
to the next. Among the contributing factors are:
• Policies, programs and activities that are poorly conceived and
managed,
• Failing institutions,
• Poverty and Deprivation
• Income disparities,
• Inadequate civil servants’ remuneration,
• Lack of accountability and transparency.
• Political and or Economic Brigandage
54

55. EXAMPLES OF CORRUPTION AT VARIOUS STAGES OF
PROCUREMENT
• Pre-qualification and tender
• 1. Loser’s fee
• 2. Price fixing
• 3. Manipulation of pre-qualification
• 4. Bribery to obtain main contract award
• 5. Bribery during sub-contract procurement
• 6. Corruptly negotiated contract
55

56. EXAMPLES OF CORRUPTION AT VARIOUS STAGES OF
PROCUREMENT
• 7. Manipulation of design
• 8. Specification of overly sophisticated design
• 9. Inflation of resources and time
requirements
• 10. Obtaining a quotation only for price
comparison
• 11. Concealment of financial status
56

57. EXAMPLES OF CORRUPTION AT VARIOUS STAGES OF
PROCUREMENT
• 12. Intention to withhold payment
• 13. Submission of false quotation
• 14. Falsely obtaining export credit insurance
57

58. EXAMPLES OF CORRUPTION AT VARIOUS STAGES OF
PROCUREMENT
• Project execution
• 15. False invoicing: supply of inferior materials
• 16. False invoicing: supply of less equipment
• 17. False work certificates
• 18. Excessive repair work
• 19. Overstating man-day requirements
• 20. Inflated claim for variation (1)
• 21. Inflated claim for variation (2)
58

59. EXAMPLES OF CORRUPTION AT VARIOUS STAGES OF
PROCUREMENT
• . False variation claim
• 23. Issue of false delay certificate
• 24. False extension of time application
• 25. False assurance that payment will be made
• 26. Delayed issue of payment certificates
• 27. Concealing defects (1)
• 28. Concealing defects (2
59

60. EXAMPLES OF CORRUPTION AT VARIOUS STAGES OF
PROCUREMENT
• 29. Set-off of false rectification costs
• 30. Refusal to issue final certificate
• 31. Requirement to accept lower payment
than is due
• 32. Extortion by client’s representative
• 33. Facilitation payment
• 34. Overstating of profits
• 35. False job application
60

61. EXAMPLES OF CORRUPTION AT VARIOUS STAGES OF
PROCUREMENT
• Dispute resolution
• 36. Submission of incorrect contract claims
• 37. Concealment of documents
• 38. Submission of false supporting documents
• 39. Supply of false witness evidence
• 40. Supply of false expert evidence
• 41. Bribery of witness
• 42. Blackmail of witness
61

62. EXAMPLES OF CORRUPTION AT VARIOUS STAGES OF
PROCUREMENT
• 43. False information as to financial status
• 44. False statement as to settlement sum
• 45. Over-manning by law firm
• 46. Excessive billing by lawyer
• 47. Complicity by lawyer
62

63. PSYCHOLOGY OF FRAUD: WHAT
MOTIVATES THE FRAUDSTER
63

64. Pressure or Incentive
• Perceived need is often created by expensive
addictions such as substance abuse, sex addiction,
gambling addiction, and spending addiction.
• Typically, a person committing fraud has an incentive
or is under some sort of financial pressure.
• There may be an unexpected financial crisis in the
family or the individual may be living beyond her/his
means
64

65. Pressure or Incentive
The four 'Bs' of perceived need:
• Beer,
• Boobs,
• Betting,
• Borrowing.
65

66. Pressure or Incentive
• Once begun, the fraud typically continues, and even
grows.
• The fraudster gains confidence and becomes
accustomed to the enhanced financial situation.
• Many fraudsters initially tell themselves that the
scheme is only temporary.
• Once the current crisis (or after whatever drove the
perpetrator to hatch the scheme in the first place)
has passed, the illegal activity will stop
• The fraudster becomes confident and typically
enlarges the scam. 66

67. Rationalization
• Fraudsters must be able to rationalize their
schemes to themselves or embrace an
attitude that the fraud is somehow justified;
thus, rationalization or attitude is a factor
typically found in a fraud situation
• People who commit fraud may be able to
convince themselves that the wrongdoing is
only temporary and will stop when the
financial crisis does
67

68. Rationalization
• People who commit fraud might feel that they
need the money more than the entity.
• Somehow, they are justified in taking the
money or goods or services.
• They might believe that they deserve the
extra money, perhaps to right a perceived
injustice
68

69. Opportunity
• This is one area that companies have the
ability to control.
• Opportunity is the means to steal when there
is inadequate system of internal control and
segregation of duties.
• where suitable controls are in place, the
individual may be able to override the system
69

70. OCCUPATIONAL FRAUD
• The term "occupational fraud and abuse" is
broadly defined as "the use of one's
occupation for personal enrichment through
the deliberate misuse or misapplication of the
employing organization's resources or assets”
70

71. LARCENY
• Larceny, according to Black's Law Dictionary, is
"felonious stealing, taking and carrying, leading,
riding, or driving away with another person's
property, with the intent to convert it or to deprive
the owner thereof.
• The key element in a larceny scheme is the fact that
there is no effort to cover up the theft.
• Unlike the skimming schemes, the cash has already
been recorded on the books.
71

72. SKIMMING
• "Skimming" is the embezzlement of cash from
an entity prior to its being recorded on the
books
72

73. DAY 3
• Welcome to the 3rd Day:
• Interviewing for Fraud in the Audit Process
• Fraud Investigation
• Interviewing Fraud Suspects
• Free discussion on all the topics, question and
answer
73

74. INTERVIEWING FOR FRAUD IN THE AUDIT PROCESS
WHAT THE STANDARDS SAY
• Statement of Auditing Standards (SAS) no. 1,
Responsibilities and Functions of the
Independent Auditor, says, “The auditor has
responsibility to plan and perform the audit to
obtain reasonable assurance about whether
the financial statements are free of material
misstatement, whether caused by error or
fraud.”
74

75. WHAT THE STANDARD SAYS
• SAS no. 99, Consideration of Fraud in a
Financial Statement Audit, reiterates that
concept and places a heavy emphasis on
making inquiries. Paragraphs 20 through 26
enumerate those questions that Auditors
should ask management in checking for fraud
risk.
75

76. WHAT THE STANDARD SAYS
• Paragraph 27 is clear: “The auditor should be aware
when evaluating management’s responses to
inquiries…that management is often in the best
position to perpetrate fraud.”
• Indeed, therein lies the challenge: Some people in
positions of trust commit wrongdoing, and those
committing wrongful acts and fraud can—and do—
lie to auditors and/or managers/investigators.
76

77. Interviewing for fraud in the audit process
• Interviews are a useful audit tool to gather
information about internal controls and fraud
risks for several reasons.
• First, employees involved in the day-to-day
operations of a functional area possess the
best knowledge of that area.
• They are in an excellent position to identify
weak internal controls and fraud risks
77

78. Interviewing for fraud in the audit process
• Second, although most employees are not
directly involved in fraud, they may have
knowledge of suspected, or actual, frauds that
interviews can bring to light.
• Third, employees may be reluctant to tell
management about needed internal controls
and suspected or actual fraud, even when a
company has an ethics hotline, a compliance
officer, or other reporting mechanisms.
78

79. The Information Needed In Audit Process
• A primary difference between SAS 82 and SAS
99, which superseded it, is that the latter
includes expanded requirements for inquiries
of management.
• Making inquiries of management is important
because senior management is often in the
best position to perpetrate and conceal fraud.
79

80. Information
• In obtaining information necessary to identify
the risk of fraud in a financial statement audit,
SAS 99 requires auditors to ask the following
questions:
• Does management communicate its views on
ethical business behavior to its employees?
• Does management have programs and
internal controls designed to prevent, deter,
and detect fraud?
80

81. Information ..contd.
• Does management discuss with the audit committee
of the board of directors how its internal control
system serves to prevent, detect, and deter fraud?
• Does management understand the fraud risks
specific to its business?
• Does management monitor fraud risks relevant to
specific components or divisions within the entity?
• Does management have any knowledge or suspicion
of fraud?
• Is management aware of any allegations of fraud?
81

82. Information ..contd.
• In addition to management inquiries, SAS 99
also requires an auditor to inquire of the audit
committee and of internal audit personnel
about their views on the company’s fraud
risks.
• Significantly, SAS 99 mandates that other
individuals within the company also be
questioned about the risk of fraud
82

83. Information ..contd.
Paragraph 24 of SAS 99 states:
• The auditor should use professional judgment to
determine those others within the entity to whom
inquiries should be directed and the extent of such
inquiries.
• In making this determination, the auditor should
consider whether others within the entity may be
able to provide information that will be helpful to the
auditor in identifying risk of material misstatement
due to fraud.
83

84. Information ..contd.
• SAS 99 suggests that auditors inquire of
operating personnel with varying levels of
authority, of in-house legal counsel, and of
others knowledgeable of fraud risk.
• Because employees are often aware of where
specific fraud risks lie, auditors should
understand employees’ views on the risk of
fraud.
84

85. Information ..contd.
• Auditors should look for discrepancies in
information received from various
interviewees.
• Unusual situations or conditions identified
through interviews with management and
others can be revealing
85

86. Interview Subjects
• SAS 99, paragraph 6, identifies the two types of fraud
that auditors should be aware of as “misstatements
arising from fraudulent financial reporting and
misstatements arising from misappropriation of
assets.”
• As a result, inquiries should be directed toward
individuals concerned with financial reporting as well
as those with direct or indirect access to the
company’s assets
86

87. Interview Subjects
• The CEO and the CFO should be carefully interviewed by a
partner or experienced audit manager about their knowledge
or suspicion of fraud.
• These executives have the power to override internal
controls, and therefore are in a position to perpetrate and
conceal fraud.
• Their administrative assistants may be privy to sensitive
information and may suspect or be aware of fraudulent
activity, and should also be interviewed.
• Individuals may be aware of fraudulent activities but not
disclose them unless specifically asked
87

88. FRAUD INVESTIGATION
• A fraud investigation can cover a wide variety
of issues and actions
• Fraud investigations and forensic enquires
may not involve actual fraud or corrupt
behavior but may instead be concerned with a
breach of company policy, a problem with
health and safety, harassment, or an
investigation into security
88

89. FRAUD INVESTIGATION
• Fraud itself is defined as a misrepresentation that is
intended to deceive a person or business.
• Companies can be accused of fraud if they make
claims about a product they sell that are untrue or
made up only in order to make a profit.
• Fraud investigations are carried out to determine
whether fraud has taken place or whether there is
evidence of the fraud
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90. FRAUD INVESTIGATION
• Fraud can cause serious problems not only
concerning loss of money but physical harm to
people and harm to reputations.
• Fraudulent behavior or unethical actions can
impact strongly on a business.
• Unethical behavior can bring emotional as
well as financial trauma from which a business
may take years to recover
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91. FRAUD INVESTIGATION
• Fraud investigations cover a number of procedures,
including the thorough analysis of electronic data.
• Computer forensics is vitally important when dealing
with fraudulent or unethical actions in businesses
today.
• It can reveal evidence that would otherwise never
have come to light — evidence can be hidden within
mountains of electronic data, and only professional
computer forensic investigators will be able to
uncover it
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92. FRAUD INVESTIGATION
• Computer forensics is one of the first procedures to
be carried out in a fraud investigation — making sure
that dates and time stamps on files are not changed,
and that critical information is not overwritten.
• A fraud investigation should always be carried out
from an objective position and supported by
documented evidence.
• The investigation should be carried out by a neutral
professional, so that the company can ensure it is
seen to be complying with a commitment to
objectivity.
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93. INVESTIGATION AND EXPERT WITNESS TESTIMONY
• Forensic Accountants are often called upon to initiate
a fraud investigation for the primary purpose of
determining whether a fraud has occurred.
• Other reasons for initiating a fraud investigation
include the following: a tip or concern received (from
an employee, a vendor, a customer, or other source),
an accidental discovery, fraud uncovered as a result
of an audit, or a concern from the business as to the
adequacy of their internal controls system.
93

94. Fraud Investigation
A fraud investigation is the systematic
examination to obtain the truth as to:
1. Whether a fraud has occurred
2. Who is involved
3. How it was perpetrated
4. How much is involved
94

95. Fraud Investigation versus Accounting Audit
Target Purpose Techniques Required
Employed Standards
Financial Examination of Express an Audit SAS No.99
Statement financial data, opinion on sampling, requires
Audit i.e. financial the financial examination auditors to
statements
data i.e. of financial approach
financial data, audits using
statements confirmation professional
skepticism
Fraud Resolve one Determine if Sufficiency of
Investigation or more very fraud has proof in order
specific occurred, who to either
allegations of is involved, prove or
fraud and what do disprove the
they know fraud 95
allegation

96. Difference between the two
• The differences between forensic accounting/fraud
investigation and auditing can be explained by how
they vary by
• scope,
• nature,
• purpose,
• frequency,
• methods used,
• and presumption.
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97. Steps in Conducting a Fraud Investigation
There are five key steps in conducting the
investigation:
• -gathering record,
• -looking for patterns,
• -determining possible fraud theories,
• - interviewing witnesses,
• - and the report.
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98. Gather the Records
• Forensic accountants are well-acquainted with
the activities of this step, mainly to gather
documents used within the organization.
• Records would include vendor invoices,
customer invoices, cancelled checks and bank
statements, purchase orders and receiving
reports.
98

99. Look for Patterns and Irregularities
• After gathering the necessary organizational
document, the forensic accountant will review
and analyze the documents to look for
patterns and irregularities.
• The accountant may use analytical
procedures, sampling techniques, and ratio
analysis in order to determine if patterns or
irregularities exist within the data
99

100. Determine Possible Fraud Theories
• After inspecting and analyzing the documents,
the forensic accountant will be able to
develop a possible fraud theory (or multiple
theories).
• The theory will identify potential schemes and
methods used.
• As theories are developed, the accountant will
need to “test” the theory to determine likely
scenarios for the fraud.
100

101. Interview the witnesses
• This step is undertaken usually to support an
allegation of fraud.
• Before beginning this step, the forensic
accountant should recommend that the
clients advise their legal counsel.
• There may be additional considerations to
include, for which the attorney can be a
resource.
101

102. Fraud Interview Questions
• A fraud interview is nothing more than a structured
meeting in which questions are designed to elicit
information from witnesses.
• The interviewer may be scheduled to ask only one
question, but more often, the interview is comprised
of a series of questions.
• There is an art to asking questions, and the means to
acquiring the artful skill is through practice.
102

103. --
• Fraud examiners should conduct the interview
in a manner so as to ensure the individuals
privacy, and the interview should be
conducted under reasonable circumstances.
• They must ensure that they are not accusing
the individual of the fraud in the course of the
interview
103

104. --
• The fraud examiner should be direct in asking the
subject specifically if she/he has committed the
fraud.
• If the case should go to litigation and the examiner is
attacked professionally, she/he would be able to
respond that all individuals in question, during the
course of the investigation, were asked if they were
involved with the fraud.
• This establishes that the fraud examiner did not
avoid her/his professional responsibility
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105. INTERVIEWING FRAUD SUSPECTS
Good Fraud Interview
• A good interview should be succinct, but last
long enough to disclose the significant facts.
• The interview should also occur as soon after
the event as possible, in order to avoid losing
key details.
• The interview should be conducted privately,
so that others can neither hear nor observe
the interview.
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106. Seven key attributes of an interviewer
• Organized
• Engaged
• Thoughtful
• Listening
• Flexible
• Observant
• Non-Threatening
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107. Understanding Body Language
The following is a list of some physical
indicators:
1. Placing hand in front of mouth when speaking
2. Excessive blinking or blinking too quickly
3. Frequent touching of the nose (the nose is
especially sensitive to stress)
4. Raising of eyebrows
5. Crossing of arms or legs
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108. --
6. Lack of eye contact (or an excess of eye
contact)
7. Tapping of fingers feet
8. Frequent swallowing
9. Constant touching of hands to face or head
10. Holding tightly to arms of chair
11. Sweating
12. Shifting posture
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109. The End
Thank you for your:
• Time
• Interest and
• Attention
109